National Financial Inclusion Strategy: Strategic Considerations
Outline Why a national financial inclusion strategy? Why digital? Where we want to go targets Where we are now context Key thrusts Exploring synergies: The first and last mile of financial inclusion Fostering a virtuous inclusion cycle: Innovation, demand, and trust
Why a financial inclusion strategy? Why digital? Financial inclusion is for social cohesion and empowerment. A national financial inclusion strategy: provides a comprehensive framework with all stakeholders consultation. facilitates prioritization and coordination, leveraging synergies. Digitization: democratizes and enhances both efficiency and inclusion. expands inclusion from financial to social services.
Where we want to go Targets The government has embraced sustainable growth agenda, aided by the central bank s financial inclusion initiatives. SDGs: Expand access to banking, insurance and financial services for all 7 th 5-Year Plan (2016-20): Financial inclusion: No one left behind Digitization: For better governance, transparency, and service delivery
Where we are now Context From a low-income agrarian society at its birth in 1971, Bangladesh is now a lower middle- midst of critical income country of 160 million people in the transitions. Urbanization Industrialization 30% Demographics 50% < 25 yr 125 m Mobile 28% GDP Technology
Where we are now Poverty Reduction Growth from labor-intensive manufacturing, agriculture, and remittance has been inclusive, supporting poverty reduction and gains in HDIs. 100% 75% 73 Poverty Rate Life expectancy 40s => 70+ years 50% 25 25% 0% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Where we are now Inequality Inclusion minimized inequality: lower than the start and lowest among the peers. 40 30 Gini Coefficient : Bangladesh 50 40 30 Cross-Country Gini Coefficients 20 20 10 10 0 1973 1992 2010 0
Where we are now Financial Depth Bangladesh ranks well in terms of its financial depth. 60 Domestic Credit (In percent of GDP) Median Emerging Market Depth 40 20 0 Tanzania Kenya Mexico Indonesia Sri Lanka Nigeria Phillippines Bangladesh India
Where we are now Agriculture Credit Size of agriculture sector credit also ranks well, with high impact on output. 8 Agriculture Credit (In percent of total credit) 6 Productivity: Agriculture Credit (Value added per unit of credit) 4 4 2 0 0
Where we are now MFIs MFIs are playing an effective role in financial inclusion. Borrowers (In percent of population) 15 Depositors (In percent of population) 10 5 Tanzania Nigeria Sri Lanka India Kenya Phillippines Bangladesh 0 India Tanzania Nigeria Sri Lanka Phillippines Bangladesh Kenya 24
Where we are now MFS Digital inclusion through MFS represents a paradigm shift. 40 30 Clients (In millions) Clients (In percent of adult population) 32 million 30 20 22 10 12 0 3 Dec 0 '11 Dec '12 Dec '13 Dec '14 Dec '15
Where we are now Summary Bangladesh has made impressive strides in financial inclusion. Accounts (In percent of adult population) 25 66 41 30 Banks and MFIs MFS
How to move towards universal access?
Objectives Include the excluded or vulnerable groups and sectors, often exposed to income, wealth, and climate change shocks. Minimize marginalization and vulnerabilities amid Bangladesh s transitions. Leveraging technology for the reach and sustainability of inclusion initiatives.
Key Thrusts Sector (Agriculture) MSME (Refinancing) Gender Priority Rural Access (Promoting rural branches) Marginalized and excluded (Landless; No Frill Accounts) Green Financing Life-cycle approach toward inclusionn (school banking, pension) Insurance (crop, livestock, fishery) Digital inclusion initiatives
Laying the Foundation for a Digital Ecosystem The government and BB have built technology infrastructure connecting the first and last mile financial inclusion with various enablements: Online credit information and supervisory reporting Payment systems (RTGS) Bangladesh Automated Clearing House (BACH) National Payment Switch (Interoperability) Electronic fund transfer (EFT)
Laying the Foundation for a Digital Ecosystem The government and BB is working on the first and last mile inclusion: NID-linked G2P Payments, a catalytic initiative for the digital ecosystem Union Digital Centres (4500+ Unionn Parishads, lowest tier of local government) Agent Banking; Point of Sale (POS); Rural branches; Rural Savings Banks (One House One Farm) Ongoing initiatives: Joyeeta (women s economic empowerment) NID-linked inclusion initiatives for efficiency, transparency, and governance
The FIRST and LAST MILES of Inclusion The public sector plays a catalytic role in the first mile access and the private sector in the last mile innovation. Easing the FIRST MILE Bridging the LAST MILE MFS Agent Banking Rural Branches, Savings Bank Post Offices Union Digital Centres MFS Agent Banking Post Office NID-linked e-kyc Union Digital Centres Delivery of social safety nets
A Virtuous Cycle: Innovation, Demand, and Trust Sustainable inclusion requires innovation that can create and respond to the bottom-up demand. Trust and risk management are essential for scaling up any initiative. Ingredients: Fostering innovation (Challenge Fund Initiative) Financial literacy Consumer protection (Customer Interests Protection Centre) Coordination among regulatory agencies Demand and impact assessment
Guiding Principles Strategy Formulation with national support and led by a s high level steering committee Consultation With and among public and private stakeholders Coordination across agencies and between the public and private sectors (FIs, MFS, tech solution providers) Synergies among products and providers (e.g., insurance can unlock credit, payment ease deepens deposit and credits) Innovation followed by regulation (learning by doing, experimentation)
National Financial Inclusion Strategy